“An Israel-Hamas war would be tragic, but the impact on the global economy and markets is limited,” Rabobank’s Michael Every wrote Wednesday, in a note co-authored by Joe DeLaura (an energy strategist) and Stefan Vogel (the bank’s general manager for research in Australia & New Zealand).

He added a caveat: “Unless Israel were to lose the ground war in Gaza, which would be a huge shock to the collective West, to say nothing of Israel.”

On Wednesday morning, I gently suggested that Israel could, in fact, lose a ground war in Gaza the same way the US “lost” in Somalia. The kind of urban warfare the US fought in Mogadishu and, over a decade later, in Fallujah, is the stuff nightmares — and military embarrassments — are made of. You’re lost as soon as you get in there, everything’s a trap and everybody who’s outside after dark is a belligerent except for the one unarmed civilian you’ll invariably shoot because you mistook a makeshift walking cane for a rifle.

As Every suggested, markets might be inclined to look over a “limited” conflict (and “limited” is a misnomer considering we’re talking about 300,000 Israelis massing for a prospective invasion of a territory with a population larger than Philadelphia) that doesn’t go beyond Gaza. But there’s considerable spillover risk. Below, find Rabobank’s summary of two additional war scenarios, neither of which would be as easy for markets to ignore or otherwise dismiss.

• Israel (US)-Gaza-Lebanon-Syria-Jordan-Egypt: If Israel starts a ground war against Hamas, Hezbollah will start its own assault with its huge missile stock. This would soon deplete Israel’s Iron Dome defenses, making mass casualties inevitable, with a matching Israeli response against Lebanon, already close to being a failed state. Israeli media reports France was recently used as conduit to transmit the message that should Hezbollah attack Israel, the US forces would hit it too, dragging the US in. Israel has separately warned it will attack Syria if Hezbollah attacks it. Notably, Israel has already exchanged limited fire with Hezbollah and with Iranian militias in Syria. Jordan and Egypt could also be destabilized. Egypt has an election in December: Its pro-Palestinian population is already seething about high inflation, and two Israeli tourists were shot dead by a policeman in Alexandria on 10/8. If Jordan and Egypt back Israel, Hamas could also target them. Note the Suez Canal runs through Egypt: What if Hamas were to attack an oil tanker in the Canal, blocking it to global trade? Israel could find itself under “existential threat,” in the words of a former senior security official, if it faces a multi-front war from Hamas, Hezbollah, Iranian militias in Iraq and Yemen, an Iran-instigated intifada in the West Bank; and from radicalized Israeli Arabs inside the 1967 Green Line. Again, this presents a huge potential shock to the West. In almost all of the above scenarios, Europe could face a new wave of refugees at a time when anti-immigrant political populism is already soaring.
• Israel (US)-Hamas-Lebanon-Syria-Jordan-Egypt-Iran-Saudi/Gulf: With Iran blamed by some as responsible for 10/7, there is a risk Israel may target it – something long whispered over Tehran’s pursuit of a nuclear weapon. Naturally, Iran would then attack Israel, Jewish targets world-wide, and maybe pro-Israel Western governments, as well as Saudi Arabia, and/or oil tankers in the Straits of Hormuz. This could risk dragging the US into another open-ended Middle East war, with Russia (and China) backing Iran. Even in a much milder scenario where the US merely opts to enforce oil sanctions against Iran properly, i.e., not allowing sales to Beijing (exacerbating US-China tension), Tehran could destabilize Hormuz by harassing oil shipping, as it has done often of late.